Lincoln National (LNC) Q4 2011 earnings summary

Executive summary

• 2011 operating revenue rose 5% to $11.0B and income from operations increased 27% to $1.3B; GAAP net income fell to $294M, primarily due to a $747M goodwill impairment charge.

• Deposits totaled $21.6B, net flows were $6.4B and ending account values reached $160B; capital actions included a 60% dividend increase, $575M of share repurchases and $225M of long-term debt reduction.

Financial highlights

• GAAP revenue was $10.636B, up from $10.407B in 2010; net income was $294M versus $980M, and diluted EPS was $0.92 versus $2.54.

• Income from continuing operations was $302M; excluded realized losses after tax were $252M, and the after-tax impairment of intangibles was $747M.

• Operating cash flow was $1.277B; total assets were $202.9B and stockholders’ equity was $14.2B at year-end.

Outlook and guidance

• 2012 priorities: manage capital and liquidity, reprice products for low rates, continue strategic business investments, expand distribution and control expenses.

• Life Insurance pricing changes were expected to lower sales and potentially market share temporarily; sales emphasis was shifting toward indexed UL and linked-benefit products.

• Under a sustained-low-rate scenario, estimated unfavorable earnings effects were $15M–$20M in 2012 for Life Insurance, $10M–$15M for Retirement Plan Services and up to $5M for Group Protection; Annuities impact was minimal.

• Group Protection non-medical loss ratios were expected to remain within the 71%–74% long-term range in 2012; every 1-point increase above expectations could reduce annual operating income by $10M–$12M.